Budgeting for Europe's economic growth

Policymakers are currently reforming the rules that govern fiscal policy coordination in the EU and the euro-area. To help, an EU-funded project will investigate the best options for building a stronger economy.

As the economic and financial crisis unfolded, policymakers responded by making reforms to rules on fiscal policy coordination in the EU and the euro-area. The rules are designed to ensure national budgets support sustainable economic growth and high employment.

Currently, policymakers are considering additional reforms to these rules. The EU-funded FIRSTRUN, which began in March 2015, plans to contribute to a better understanding of the options available as they move ahead with the reforms to the EU’s economic and monetary policies.

The research will include an analysis of the current functioning of the newly introduced rules and will address the uncertainty related to fiscal forecasts. The project seeks to quantify the importance of fiscal policy spillovers and the gains from fiscal policy coordination in the EU. Part of the research will focus on alternative models of fiscal union for the euro-area. The options could combine different forms of market and fiscal risk sharing mechanisms – such as a banking union and the ability to issue eurobonds.

Other goals for the project include:

assessing the effectiveness of the improved EU economic governance in securing economic stability;

designing good national fiscal policy strategies that take into account EU fiscal rules;

Based on the research, the project will propose reforms to fill possible gaps in the current governance framework. These proposals would then feed into the ongoing process to strengthen economic stability for EU and euro-area countries.